5th April 2025 > > Trump & stablecoin regulation.

tl;dr

Trump’s tariffs again. New guidance for stablecoin regulation meets with the CCC approval.

Market Snap

Market Wrap

When cryptos follow stocks for a few days, the naysayers are out in force. Funny how they shut up when BTC proves its value as part of a diversified portfolio.

Jerome Powell, Chair of the Fed, was personally responsible for printing dollars whilst the US economy was in shutdown, a strategy that was guaranteed to cause inflation both persistent and structural. Powell continued to describe that inflation as “transitory” long after everyone knew that was not the case. Now he claims:

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent.”

On the first point he is probably correct, but we will not know for sure for many months. And on the second point, he is indulging in pure speculation, with no justification whatsoever, which is his stock-in-trade. Bond markets are saying the opposite, and they are a much better guide to the future. The possibility of emergency rate cuts looms large.

Occasional Series – Mumbai

My patience with the lack of reliable and accessible WiFi is being somewhat tested.

Curious Cryptos’ Commentary – Trump’s Tariff Wars

The consensus opinion amongst the technocratic elite, who mostly get it wrong, is that the TTW will lower economic activity, putting over-indebted governments into some potentially serious trouble. This is one of those rare occasions when I find myself in bed with said technocratic elite, which is not a particularly comfortable position to find oneself in, as I am sure you will agree, but for now it will have to do.

The betting markets concur:

That is quite a move over the last month.

With the probable exception of Germany, there are few candidates in the Western world whose government feels it can cut public spending to cover the interest payments falling due on the debt accrued during the good times. Sure, there will be talk of reining in future spending, but that amounts to no more than a slowing down of the increases that are mostly baked in, and frankly is just talk, no more than that.

The less painful route – as further tax rises are now clearly self-defeating – is a lowering of interest rates, especially in the long end. When central banks announce once again that they are buyers of their own government debt in any maturity and any size, the market yield on new debt heads quickly back to close to zero, putting off painful decisions about the current imbalance between the public and private sector, making that a problem for someone else. And that is always an outcome that is most pleasing to politicians of all stripes.

It is also great for our crypto bags, which remains the best hedge against the technocratic and political incompetence we see all around us.

Curious Cryptos’ Commentary – Arthur Hayes

I love quoting Arthur, for he reinforces all my internal biases:

Curious Cryptos’ Commentary – Regulatory clarity

The SEC has taken the next step on its path to providing regulatory clarity for the crypto industry.

Previous statements exempted proof-of-work crypto mining (that’s a good thing) and memecoins (that’s not a good thing). Now stablecoins, or at least some of them, have also been given a carve-out:

https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425

This makes a lot of sense to me. The legal definition of securities in the US, the Howey Test, is nearly a hundred years old and entirely unsuitable for today’s world, which probably explains Gensler’s enthusiasm for it when he used to have a job. Core to the Howey Test is the requirement of an expectation of a financial return on the investors’ part. That clearly is not the case for stablecoins, for they pay no return. Staking options to earn yield are a separate activity to the minting and issuing of stablecoins.

The CCC has often been highly critical of USDT issued by Tether, and highly complementary about USDC issued by Circle. The latter is over-collateralised with cash or cash-like instruments, whereas the former has always been irresponsible with its collateral. Back in the day, it even had crypto-secured loans to Chinese companies within its asset base, introducing correlation risk in the very last place that you would want to see it. It has improved its attitude towards risk-taking since then, but it is still very far from being a text-book case of a stablecoin issuer.

The SEC has been listening to the CCC.

Within the footnotes to this statement it states that acceptable reserves “do not include precious metals or other crypto assets”.

USDC is fully compliant. USDT is not.

Tether will be forced to comply or become subject to SEC oversight. I know which of those two options is the obvious one to take.

…

As an aside, this is a great example of how targeted, sensible regulation encourages both innovation and development in the crypto sphere, whilst also making the sector safer for retail investors, two key objectives of the SEC. Watch and learn, Warren and Gensler, as your brief reign becomes an ever more irrelevant footnote to history in the making.